An Introduction to the 7 Twelve Portfolio

September 30, 2010

Some of you may remember when I wrote about Craig Israelsen’s portfolio a couple of years ago. Back then, his portfolio consisted of evenly weighting seven asset classes into a portfolio. The goal of the portfolio was to offer lower risk (through diversification) and a good return. You can read my posts about the Israelsen Portfolio here.

Dr. Israelsen sent me an email recently to let me know that he had published a book on his portfolio and asked if I would take a look at it. The book, 7Twelve: A Diversified Investment Portfolio with a Plan*, detailed a somewhat altered portfolio from the one I wrote about in the beginning. The 7 Twelve portfolio is composed of 7 asset classes with 12 mutual funds (or exchange-traded funds) representing those asset classes:

• U.S. Stock

1. Large companies
2. Medium-sized companies
3. Small companies

• Non-U.S. Stock

4. Developed companies
5. Emerging companies

• Real Estate

6. Real estate

• Resources

7. Natural resources
8. Commodities

• U.S Bonds

9. Aggregate bonds
10. Inflation-protected bonds

• Non-U.S. Bonds

11. International bonds

• Cash

12. Cash

As you can see, it’s a pretty diversified portfolio. Each fund represents 8.3% of the total portfolio. Based on that, over 33% of the portfolio would be in bonds and cash.

The book goes into a lot of detail about the portfolio. The author even has a list of mutual funds and exchange-traded funds for each of the asset classes, which is very helpful. Browsing through the list, I’m certain an investor could construct a low cost portfolio.

As far as rebalancing goes, Dr. Israelsen used monthly rebalancing in his examples. I would probably rebalance once a year.

I’ll be looking more into the 7 Twelve portfolio in the next few days. I’m even working on an email interview with Dr. Israelsen. Right now I just wanted to give you an introduction to the concept and the book. For more information, check out Dr. Israelsen’s website, 7TwelvePortfolio.com. For those who are interested, you can check out the latest performance report.